So apparently I need to spend more money throughout the year on business deductible items to have enough to write off to reduce having to pay more than my estimated taxes. I came up a little short for 2020 and paid $562 above my quarterly estimate. I could pad the estimate by about $150, but then I may over pay. Yea, yea, I would get it back, but where is the fun in that?
Perhaps some suggestions? I’m a solo operator but I do have a friend I hire on a temp basis to help with the larger jobs. I also draw the line at 3 story and above.
It’s hard to tell you what to add when we don’t know your books, your tax advisor would know more than I would. That being said, our tax advisor was a great help last year. And stuff keeps changing due to COVID.
I did. I’ll be buying a new computer this year, so that will burn a chunk. I put flooring in the home office, so that helps. The walls will be painted and shelves put up. Then start looking at tool upgrades and such.
So, not to try and talk you out of giving Jordie and WCR more business, but…
Spending should be the method of last resort when trying to reduce your tax burden. Yes, it works, but remember that you’re really only saving 20% or 30% in taxes on whatever additional spending you do. So unless it’s stuff you really need (and/or will result in increased profits or efficiency somehow), it usually makes more sense to just pay a little more in taxes.
Depending on your income level, it might be time to talk to your CPA about making the s-corp election. You need to be an LLC or Inc., but the tax savings is usually more than worth the bit of extra paperwork. The savings come from the fact that you only pay employment (SS, etc) tax on the portion you take as payroll income. You then take quarterly distributions to supplement your income, and are taxed just the base tax rate on the business’ profits.
In 2019 we saved around $4k in taxes by doing this (and could’ve saved a bit more if we had kept our salary a bit lower and took more income in the form of distributions). Last year was a bit of a wash since we had hardly any profit. But this year it will save us a good bit on our taxes, again.
TDS around here runs between 185-225, so I use the Unger Hydropower and go through about 3 to 4 bags of resin per year. I work up to 3 story so the 35 Tucker works well for me; actually some jobs are a taller than average 3 story so the pole max’s out.
That article was informative, but not 100% accurate. S-corp is simply how the IRS sees you for tax purposes; in most states at least, you can be an LLC, and elect to be taxed as an S-corp.
You do have to file the annual report and have a registered agent (which can be you, in most cases, costing you nothing). And you have to pay yourself a salary with regular income tax withholding and payments, but there are a vast array of payroll services available that will do all of that for around $30-$50/month.
I guess technically, there is a bit less control with an S-corp, but so far we’ve found the requirements to be a protection, and not a hindrance. We no longer have anxiety over coming up with more tax money at the end of the year. And honestly, we keep better books now, putting us in a better position if we get audited.
Excellent advice Alex; my first accountant who helped me set up my business said if you can balance your pay check and quarterly check about 50/50 60/40 you’ll be good. As an S-corp I don’t think a lot of business owners understand the advantage that you aren’t paying personal payroll taxes (SS, MED, unemployment, workers comp) on your net profit and neither is your business. Especially advantagous if you have more than one source of income or multiple businesses.
